Observe the recent reports of state tax commissions. They refer favorably to the classified property tax and the income tax and consign the general property tax to oblivion. Under the model tax system, income from bank shares may properly be included in the state income-tax schedule, thereby relieving the bank from the burden of camouflage;-make it really a tax on the individual stockholder and stop "annoying" the courts. The theory upon which bank taxation developed, was certainty to the state in the collection of the tax, by imposing it upon the source which, because of the character of the business, must disclose accurately the real value of the stock. The thought of the proposed model tax system would be followed essentially by applying the property tax, through local taxation, on the real estate owned by the banks as at present, and possibly by a business tax, as proposed in the model system. The aggregate tax may be so adjusted as not to be greater than the most equitable tax now in operation. The federal enabling amendment would protect the national banks as well as the state and at the same time it would protect state chartered banking institutions.

Thus, an effort has been made to describe the problem of the improvement in methods of assessment of bank shares and eventually a more adequate and equitable plan of bank taxation. The second problem will be briefly discussed-the problem of the injustice practiced in the taxation of savings deposits and the archaic methods followed in certain states.

Little has been written, and even less discussion had about the gross inequalities in the tax on savings deposits. This tax is paid by mutual savings banks in nine states-namely: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey and Maryland. An abstract digest of these laws is contained in the attached. appendix. Pennsylvania has a tax on mutual savings banks of 3 per cent of net earnings which is not made a part of this discussion.

For your information, the mutual savings bank is a noncapital stock institution. It operates for the benefit of depositors, and its trustees or directors serve without pay. The institution has been developed on the basis of great con

servatism and its investments are of the highest grade, so that the yield thereon is sufficient to pay the depositors a reasonable dividend, to take care of an economical overhead expense, to credit a certain amount to surplus or guarantee fund to promote soundness, and of necessity in certain states, to pay a grossly unfair tax.

To certain of the legislatures of the above mentioned states, the mutual savings bank as such, has been simply a tax paying institution. To some legislators its only real value has been in the raising of revenue. In assessing such deposits, no thought has been given of the rate or assessment on other moneyed capital, or other property either real or personal; the savings deposit was in a class by itself. The tax-exempt postal savings deposit, which is at present in active competition with savings deposits of state institutions, was disregarded. In fact, by levying such an unfair and heavy tax on the mutual savings bank, these states have done everything possible to develop the federal institution at the expense of their own children. These banks have not the element of special privilege which may justify a high tax.

The postal savings bank of Massachusetts is permitted to take more savings than the mutual savings bank of that state. The limit of postal savings for each depositor is $2500 whereas the savings bank of Massachusetts is limited to $2000. The principal arguments of the states for the tax are that the mutual savings institution is not a poor man's bank but an institution where the rich man deposits his wealth to evade taxation-about one per cent true; that there are great amounts of uncalled-for decedents' funds-about one-half of one per cent true; and that, if the state did not take a large slice of the annual earnings, the bank would dispose of a presumed excess by constructing new buildings-about 1/100th of 1 per cent true. Complaints have not been wide-spread on the part of the savings institutions. They have been good. and patient servants of the state and of the people. There is not a banking institution in America that enjoys the public confidence so much as does the mutual savings bank.

It is not the institution that suffers from the unfair levy,— it is rather the people of the state who are affected.

In

New England, every state of which, except perhaps Massachusetts, taxes savings deposits unfairly, 60 per cent of the people are savings bank depositors. The managers of the institutions are conservatively directing their affairs, but they are constantly harassed by the increasing imposition of the state tax on savings. There is not a tax in America which is so unjust as this one. There is nothing scientific about it. It is archaic.

Included in the attached appendices there is an abstract digest of the statistical data concerning this tax on savings deposits in various states. The gross injustice will be observed by comparing the figures contained therein. New York state seems to be the only state of the group which fairly applies the savings bank tax. There it is a so-called franchise tax of 1 per cent on surplus. The other states, with the possible exception of Massachusetts, impose a tax which virtually pays the larger part of the operating expenses of the respective state governments.

The tendency in Maine, during the past year, has been to lower the tax rate. Prior to the last legislative session, the tax rate was five-eighths of 1 per cent, with certain deductions, which made the tax equivalent to a gross earnings tax of 8.32 per cent and a surplus tax of 5.3 per cent. The rate was changed by the last legislature to 12 of 1 per cent.

New Hampshire levies a tax of 34 of 1 per cent, minus real estate and mortgage loans drawing not over 5 per cent interest, and certain state or local bonds. This tax is equivalent to a gross earnings tax of 9.17 per cent and to a tax on surplus of 5.18 per cent.

In Vermont the gross earnings are proportionately less than those of the banks of New Hampshire. The tax is equivalent to a tax on gross earnings of 12.2 per cent and to a tax on surplus of 7.2 per cent.

The Massachusetts tax is equivalent to a gross earnings tax of 3.79 per cent and to a surplus tax of 2.5 per cent.

The tax in Rhode Island is equivalent to a gross earnings tax of 8.5 per cent and to a tax on surplus of 5.95 per cent. The tax in Connecticut is equivalent to a gross earnings tax of 4.27 per cent and to a tax on surplus of 3.2 per cent.

The tax in New York is equivalent to a gross earnings tax of 2.42 per cent and a 1 per cent tax on surplus. As a basis of comparison the federal government taxes savings banks of the District of Columbia 4 per cent of gross earnings, and from recent experience, the federal government ordinarily does not levy a modest tax.

The tax in New Jersey is equivalent to a gross earnings tax of 1.8 per cent and to a surplus tax of 1.1 per cent. There is a law in New Jersey which levies a rate of one-half of 1 per cent on the amount of deposits minus funds on hand and amounts invested in public bonds exempt from taxation, and the cost of real estate purchased under foreclosure. This tax, however, is applied only in the city of Newark, which accounts. for the low percentage of gross earnings based on the gross earnings of the banks of the entire state.

The banks of Maryland pay a tax which is equivalent to a gross earnings tax of 5.7 per cent and a tax on surplus of 3.1 per cent.

In Rhode Island in 1917 the savings banks, state banks, and trust companies, paid a tax tax on savings deposits which amounted to 14.96 per cent of the total revenue collected by the state.

These figures are amazing evidence of the most unscientific and inequitable tax ever levied on society for the past century. It is an easy tax to collect and is therefore taken complete advantage of by the states.

The franchise tax of one per cent on surplus in New York state is the right tax to apply, and in justice to the people, as well as to the mutual savings institutions, other states should follow New York's example of just taxation.

In summing up, I have endeavored to present to this conference suggestions for improvement in methods of assessment of bank shares and a more adequate and equitable plan of bank taxation which may eventually be adopted. Secondly, I have attempted to present the unfair methods of taxation of savings deposits by certain states and a suggestion for correcting the evil practice.

BIBLIOGRAPHY AND APPENDIX

1. Bibliography.

2. Abstract digest and statistical data: Tax on savings deposits in mutual savings banks.

3. Bases of value for assessment of bank stock by states.

4. General opinion concerning bank taxation by states.

APPENDIX No. 1

BIBLIOGRAPHY

1. Reports of state tax commissions, 1917-1918.

2. Report Joint Committee on Taxation and State Finances to Connecticut Chamber of Commmerce, 1913.

3. State and local taxation of banks, Fred. Rogers Fairchild, American Economic Review, December 1916.

4. State taxation of national banks, George Bryan, Yale Law Journal, December 1914.

5. Bank taxation in California, an analysis of the present burden of taxation on banks, submitted to the state tax commission by the taxation committee of the California Bankers Association, January 1917. 6. Brief submitted to the joint committee on revenue and taxation of the California state legislature at an open hearing January 16, 1915, John S. Drum, chairman, legislative committee of the California Bankers Association.

7. Preliminary report of the committee appointed by the National Tax Association to prepare a plan of a model system of state and local taxation,-November 1918.

8. Taxation of Savings Banks, Charles E. Sprague, Providence Conference, for good city government, 1907.

9. Bank taxation, Luther E. Birdzell, chairman North Dakota Tax Commission, North Dakota Bankers Association, 1913.

10. Bank Taxation, F. W. Treadway, Ohio Bankers Association Convention, 1915.

11. Bank Taxation, Capt. W. H. Hart, Indiana Bankers Association Convention, 1916.

12. Stanley v. Supervisors of Albany, 121 U. S. 535; Boyer v. Boyer, 113 U. S. 689; National Bank of Redington v. Boston, 125 U. S. 60; Davenport National Bank v. Board, 123 U. S. 83; Mercantile National Bank v. New York, 121 U. S. 138; Palmer v. McMahon, 133 U. S. 660; Commercial National Bank v. Chambers, 182 U. S. 556; Whitbeck v. Mercantile National Bank, 127 U. S. 193; Amoskeag Savings Bank v. Purdy, 231 U. S. 373; Clement National Bank v. Vermont, 231 U. S. 120; First National Bank v. Paterson, 176 Pac. 498; Iowa Loan & Trust Co. v. Fairweather, 252 Fed. 605; Home Insurance Company v. New York, 134 N. Y. 594; C. O. & G. Co. v. Harrison, 235 U. S. 292.

13. Report Hal H. Smith, Counsel, Michigan Bankers Association, 1918.